Slow Start for Bharti Infratel IPO

MUMBAI — India's largest initial public offering in two years got off to a poor start, dashing hopes the issue would mark the start of a resurgence in a dismal IPO market.

Shares of telecom tower company Bharti Infratel Ltd.INFRATEL0.91%, which raised about $764 million in mid-December, slid after making their debut Friday on India's two main stock exchanges.

Within half an hour of listing, the stock was down 11.4% from its issue price of 220 rupees ($4) on the Bombay Stock Exchange. The stock closed at 191.20 rupees Friday, down 13.1% from its issue price. The BSE's benchmark 30-share Sensex closed up 0.6% at 19444.84 points.

ENLARGE

Shares of cellphone-tower operator Bharti Infratel slid after their debut. Above, a pedestrian in New Delhi walks by a sign for its parent company.
Bloomberg News

Some investors and bankers said the stock fell because it was expensive compared to the company's potential earnings. Bharti Infratel is a unit of Bharti Airtel Ltd.EQBHARTIARTL0.44%, India's largest cellphone company by subscribers.

"The IPO pricing was on the higher side," said Deven Choksey, managing director of K.R. Choksey Shares & Securities Ltd. in Mumbai.

Some smaller IPO issues this week have performed well on listing. Shares of ratings firm Credit Analysts & Research Ltd. gained 23% from an IPO price of 750 rupees, and those of PC Jeweller Ltd. gained 10.4% on debut from an issue price of 135 rupees. CARE raised $98.6 million via its IPO, while PC Jeweller raised about $100 million.

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There have been only 13 IPOs in India in 2012 -- of which three were listed this week -- amid concerns about India's slowing economic growth, high inflation and drooping local currency.

In recent months, foreign investors have returned to Indian stocks in search of cheap valuations and on expectations the economy will turn around in 2013. The Sensex is up more than 25% since the start of the year, albeit off lows in 2011. That has sparked optimism that the country's market for IPOs, which has remained in the doldrums, might be resurgent.

But Bharti Infratel's flop on listing shows the fragility of the market, analysts said. The issue price also made the IPO expensive compared to other infrastructure companies trading on India's exchanges, some analysts said.

The decline comes after the country's securities regulator this year raised concerns that too many IPOs are issued at high prices and decline on listing, hurting small investors.

Investors, particularly individuals, have shied away from IPOs after several such cases in the past two years. Of the 117 stocks listed on Indian stock exchanges between 2008 and 2011, around 60% were trading below their issue price within six months of listing, according to an analysis by the Securities and Exchange Board of India, the regulator.

The board has taken several steps this year to cushion potential price declines, including proposing a mechanism by which some small investors would get a refund if IPO prices fall sharply. The proposal, which is under discussion, has not been finalized.

Individual investors applied for less than 20% of the Bharti Infratel shares reserved for them, according to National Stock Exchange data, underlining the reluctance of small investors to buy IPO shares. The issue was fully subscribed thanks to demand from institutional investors.

Market experts said shares of the builder and operator of telecom towers could also have been hurt because of concerns over the broader telecom industry. "It's difficult to say at what price the stock will settle, but between 180 rupees to 190 rupees some smart money will get in," said Jagannadham Thunuguntla, head of research at Delhi broking firm SMC Global Securities Ltd.

Investment bankers say there isn't likely to be a flurry of IPOs in the next few months. However, a number of listed companies will likely issue fresh shares to take advantage of interest from foreign investors, who have poured $24 billion into Indian stocks this year.

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